Cambodia's Economic Challenge

At 187 meters, Vattanac Tower is currently the tallest building in Cambodia. Workers are still adding the last window frames to the top floors but the structure stands finished.

It overtook 118m Canadia Tower last year and may soon be overtaken by the more ambitious Gold Tower 42, a project currently stalled at around 20 stories, which all but completes this triumvirate of new skyscrapers in Phnom Penh’s rapidly rising Central Business District.

Designed to look like a Chinese dragon pointing out to the Mekong River, Vattanac Tower is all feng shui, glass and steel designed by British architects and built with an estimated $170 million of Cambodian cash.

David George, country manager of CBRE, one of the building’s letting agents, notes that Vattanac will be the first and only Grade-A office space in Cambodia when the first eight floors open for business in the first quarter of 2013.

“If you were in Thailand or Hong Kong, this is comparable in terms of quality,” he says.

Meaning “progress” in Khmer, Vattanac symbolizes an economy that stalled during the financial crisis, causing construction to slow, but which is once again on the upswing.

“You need the domestic market to be working for these kinds of buildings to go up,” says George.

On the surface, Cambodia’s economy is certainly improving. In September, the IMF raised its 2012 GDP growth forecast from 6.3 to 6.5 percent and, in Asia, only China and Laos are tipped to grow faster in 2013. The World Bank’s December forecast predicts Cambodia will experience an average annual GDP growth rate of 7 percent over the next five years.

But the positive statistics obscure the potentially debilitating structural issues: namely, the economy is susceptible to external shock.

The World Bank forecasts a 0.5-percentage point fall in GDP growth for 2012 versus the previous year mainly due to an anticipated drop in garment and agricultural shipments, which together account for 90 percent of Cambodia’s total export earnings.